Hedge-Fund Investors Scout Out Web Firms

Spurred by their appetite for technology companies and seeking higher returns, a growing number of hedge-fund managers have started to invest more in private Internet companies.

When daily-coupon website LivingSocial Inc. said it raised $400 million in April, the firms putting up cash included hedge-funds Tiger Global Management, Lone Pine Capital and Brookside Capital, people familiar with the matter say. Tiger’s name popped up again in late June, when the New York firm grabbed a piece of the $100 million financing round for Square Inc., a mobile-payments start-up led by Twitter co-founder Jack Dorsey.

A handful of hedge funds already had a history of such investments, but the activity has increased recently as investors try to cash in on the surging valuations of Facebook Inc., LinkedIn Corp., Zynga Inc., Groupon Inc. and a smattering of smaller companies

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